By Lucia Mutikani
WASHINGTON (Reuters) -U.S. inflation increased by the most in eight months in December amid a surge in consumer spending, suggesting the Federal Reserve would probably be in no hurry to resume cutting interest rates soon.
Other data on Friday showed labor costs rose in the fourth quarter as wages edged up. Price pressures picked up in the fourth quarter, stalling the progress in lowering inflation.
The U.S. central bank kept rates unchanged on Wednesday for the first time since launching its policy easing cycle in September. The policy statement accompanying the decision did not include the reference to inflation having “made progress” toward the Fed’s 2% target.
“The Fed’s prognosis is for a slower pace of monetary easing moving forward, as the economy is doing well and prices are only slowly returning to target in an environment of great uncertainty,” said Carl Weinberg, chief economist at High Frequency Economics. “These data support that strategy.”The Personal Consumption Expenditures (PCE) Price Index rose 0.3% last month, the largest increase since last April, after an unrevised 0.1% gain in November, the Commerce Department’s Bureau of Economic Analysis said.
The increase was in line with economists’ expectations. In the 12 months through December, the PCE price index advanced 2.6%. That was the biggest gain in seven months and followed a 2.4% rise in November.
The data was included in the advance gross domestic product report for the fourth quarter published on Thursday. The Fed tracks the PCE price measures for monetary policy. It has reduced its benchmark overnight interest rate by 100 basis point to the 4.25%-4.50% range since September.
The central bank has forecast only two rate cuts this year, down from the four it had projected in September. That reflected uncertainty about the economic impact of President Donald Trump’s plans for tax cuts, broad tariffs on imports and an immigration crackdown, which economists view as inflationary.
No rate cut is expected before June. Excluding the volatile food and energy components, the PCE price index rose 0.2% last month after an unrevised 0.1% increase in November. In the 12 months through December, the so-called core inflation advanced 2.8%, matching the increase in November.
U.S. stocks opened higher. The dollar rose against a basket of currencies. U.S. Treasury prices were flat.
ROBUST CONSUMER SPENDING
Fears about tariffs have sent consumers rushing to stock up on goods to avoid higher prices, helping to power consumer spending, which notched its fastest growth pace in nearly two years in the fourth quarter, sustaining the economic expansion.
